Tie Chain Tenant's Store Operations to Specific Store

When renting space to a national chain tenant, most savvy owners will include a lease requirement that the tenant operate its store in the space like other stores in its chain—that is, with the same look and merchandise. So, for example, a Starbucks store would follow the same design scheme as other Starbucks stores in the chain and offer the same coffees and drinks with the same level of staffing.

But if your lease is like many we've seen, it may have a loophole that could allow a store not to live up to your expectations. That's because many leases merely require the chain tenant to operate in a way that's comparable to other stores in its chain—these leases don't specify which stores in the chain the tenant must be comparable to. Why is this a problem? Because not all of the stores in a chain operate uniformly or look identical.

Based on their location, certain stores may operate differently or have a different look from other stores in the chain, explains Denver attorney Mark A. Senn. For example, a Starbucks store in New York City may have more staff and stock than a Starbucks store in a less populated area of middle America—and it may even serve different types of coffees and drinks, he says. Without protection in your lease, the tenant could end up modeling its store in your space after one of its stores with a look or operational strategy that doesn't work at your location.

Be Specific in Lease

To plug this loophole, be specific in your lease about which stores in the chain set the standard of comparison for the tenant's store in your space, says Senn. This will give the tenant a better idea of how you expect its store to operate and look, he explains.

There are many ways you can be more specific in your lease, Senn says. For example, you can choose from one of the following three options (a Model Lease Clause, at right, gives you language for all three):

One particular store. If there's one particular store in the chain that you would like the tenant to use as a model for its store in your space, refer to that model store as it exists on the day you sign the lease, says Senn [Clause, opt. #1]. By requiring the tenant to operate like a model store on a particular day, you don't have to worry if that model store later closes down or deteriorates, he explains.

Practical Pointer: As an added protection in case the model store later deteriorates, consider attaching photos of it to the lease when you sign it, to serve as a guide, Senn suggests. Or you could attach an exhibit indicating the model store's specs and operations, he says.

Majority of stores. You may want to require the tenant to operate its store in a way that's comparable to the majority of its stores in a certain area (for example, New York City), state, or region (for example, the Pacific Northwest), says Senn [Clause, opt. #2]. By focusing on a “majority” of the stores, you don't have to worry if some stores aren't operated uniformly with the rest, he explains.

Newest stores. Another alternative is to make the chain tenant agree to operate its store in a way that's comparable to a majority of its newest stores located in a certain state or region, says Senn. This is appropriate if you believe that the newest stores have the most desirable operations. Again, by picking a majority of the new stores, you don't have to worry if some of them operate differently from the rest, he explains. Also, choose a date after which the stores had to have been built so that you don't argue with the tenant over what's considered “new,” adds Senn [Clause, opt. #3].

CLLI Source

Mark A. Senn, Esq.: Partner, Senn Lewis & Visciano, PC, 1801 California St., Ste. 4300, Denver, CO 80202; (303) 298-1122.